For a growing number of corporate executives, the standard paycheck is becoming as anachronistic as carbon paper or ticker tape.
Instead, executives' salaries increasingly are linked to the performance of the companies they lead, with shares of stock and stock options forming the basis for elaborately structured and lucrative compensation packages.
To get the latest word on executive pay, the Business Journal spoke with four local compensation experts David Leach, managing director of Compensation Resource Group in Pasadena; Diana Peterson-More, president of Organizational Effectiveness Group in Pasadena; Jim Hughes, practice leader for compensation within the human capital services group at Arthur Andersen LLP in Los Angeles; and Carl Jacobs, senior vice president of Woodland Hills-based Carl Jacobs & Associates/Aon Consulting.
Question: What are the main trends driving executive pay these days?
Leach: Stock is really where it's at, primarily stock options. We're also seeing a lot of companies asking people to hold on to the stock. They're giving stock options, but asking executives to hold on to the stocks.
Jacobs: What you really see over the last 10 to 15 years is the tremendous emphasis on the creation of shareholder value. The go-go stock market has really enabled executives to cash in on compensation levels never seen or anticipated before this period of the 1990s.
Q: Which leads to the question: Are there actually executives out there who get eight-, and sometimes even nine-, figure salaries?
Leach: It's a market-driven system, like free agency in sports. There just needs to be someone there who's willing to pay the money. Whether the market's right or wrong is immaterial. That's the way the free-market system works. It's a value judgment. It's like saying, "Is Michael Jordan worth $30 million or $40 million?"
Jacobs: Some people are beginning to feel that (compensation packages) are overinflated. Institutional investors are concerned and are much more carefully scrutinizing the kind of compensation packages that are developed.
I don't think they're trying to cap the packages, but they're trying to control the way stock option grants are determined by assessing the value of the grants. One of the ways organizations develop the desired level of stock options is to look at competitors, see what they're granting and try to equal it. As the level of grants has accelerated, so does the race to stay even. If stocks cool down, the grants will be worth far less and you won't be seeing those levels of compensation.
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